EDITOR'S NOTE: This story was reported by Associated Press writers Mitch Weiss, Michael Kunzelman, Holbrook Mohr, Cain Burdeau, Troy Thibodeaux and Jason Bronis. It was written by Weiss.

CHALMETTE, La. — Five years after Hurricane Katrina, Jay Young is still haunted by the desperate voices on the other end of the telephone crying and begging for help.

As a loan officer for a federal agency that was supposed to help homeowners and businesses get back on their feet, he had high expectations he could make a difference. But he recalls how he was forced to turn away many qualified applicants because of what he says was pressure from his supervisors to close files quickly.

Karen Bazile remembers having high hopes, too, when she applied for a loan from the same agency, the Small Business Administration, to rebuild her home in the New Orleans suburb of Chalmette. While she ultimately got the money, she quickly lost faith as she struggled with different loan officers who misplaced her paperwork and told her she had only 48 hours to find and fax critical documents or her application would be canceled.

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Some 160 miles to the east, in Alabama, Erik Schmitz, former commodore of the Fairhope Yacht Club, takes in a breathtaking view of Mobile Bay from a posh new clubhouse rebuilt in part with a $1.5 million disaster loan, the maximum from the SBA. For Schmitz, the entire loan process was smooth sailing.

While stories of the Federal Emergency Management Agency's contaminated trailers and the Army Corps of Engineers' inability to shore up the levees captured the headlines in the aftermath of the deadly storms of 2005, the bungling of the SBA, the lead federal agency helping people rebuild their homes and businesses, has largely been untold.

The sagas of Schmitz, Bazile and the SBA's Young, who worked out of the agency's massive loan processing center in Fort Worth, Texas, collectively reveal how the SBA failed in so many ways, an ominous experience as the agency prepares to play a similar role in the aftermath of the massive BP PLC oil spill.

Mismanaged bureaucracyThese are stories of a mismanaged bureaucracy that still hurt half a decade later: tales of applications for low-interest disaster loans that should have been approved but were not, of applications deleted from the SBA computer system for no valid reason, of impossible-to-meet deadlines manufactured to clear backlogs, and of a process so chaotic and painful that thousands simply gave up.

An Associated Press investigation based on more than 200 interviews, thousands of pages of public documents obtained under the federal Freedom of Information Act and a first-ever detailed computer analysis of SBA data from hurricanes Katrina and Rita found that:

Despite the obvious need, 55 percent of homeowners and businesses that applied for help after the hurricanes were turned away. According to data provided by SBA, of 318,953 applications processed, 175,463 were rejected and 143,490 were approved.

Only 60 percent of the loan money approved by SBA ultimately reached applicants. Over the years, SBA officials have told congressional committees that the agency had approved more than $10 billion in loans, touting it as an example of how SBA had helped those on the Gulf Coast. However, according to the data, only $6.1 billion of the approved loan money has been dispensed. SBA officials say many applicants never accepted the loans because they found other ways to rebuild, including using insurance money. But many former applicants said in interviews that they just walked away because the entire process took too long and was too complicated.

Of the money SBA did distribute, $357 million — nearly 6 percent — has never been repaid. More than a dozen people whose loans were charged off told the AP that the agency hasn't contacted them about repayment.

Country clubs, yacht clubs, exclusive private schools and megachurches received millions in loans from the agency founded in 1953 with a mission to "aid, counsel, assist and protect the interests of small business concerns." Some of the more substantial operations rebuilt bigger and better, often contradicting SBA rules that say damaged buildings should be repaired only to their original state.

Homeowners and businesses in higher-income areas were more likely to get a loan than those in lower-income areas, according to AP's analysis of SBA data by ZIP code. "The truth is that only the wealthy moved through the system easily," said Gale Martin, another former SBA loan officer. "If you were of a certain income, we funded you first, which is not the way the system is supposed to work." Martin contended that contrary to the SBA mission to especially help people who didn't always have the means to rebuild, applicants with higher credit scores and bigger incomes were cherry-picked for processing first because those files could be closed quicker.

A disparity also existed along racial lines. For example, the predominantly white, wealthier Lakeview section of New Orleans had the city's highest ratio of approvals to rejections, while the lowest approval rates were in poorer, mostly black areas like the Lower 9th Ward. But a racial disparity was clear even among economically similar areas. SBA approved nearly 66 percent of loan applications in a predominantly white part of suburban St. Bernard Parish but approved only 42.1 percent in a predominantly black, adjacent section of eastern New Orleans with comparable median household income. SBA officials said they don't collect information about race on loan applications, but try to reach out to applicants in poor neighborhoods. Civil rights leaders say the agency hasn't done enough to help.

SBA officials insist the agency today is better prepared to handle a major disaster.

"We're not proud of what happened during the 2005 Gulf Coast hurricanes," said James Rivera, deputy associate administrator of SBA's office of disaster assistance. "Our response was slow, but we've learned from our mistakes. We've had five years to reflect on this."

During that period, agency officials say, they have added staff, improved technology and simplified the loan process to push money out quickly to disaster victims.

But recent reports by government watchdog groups and some critics have slammed SBA for being too slow to implement measures that could improve an agency with a troubled past.

Congressional investigators and SBA whistleblowers question whether the agency is any better equipped for a major disaster today, as the region grapples with the oil-spill related assault on three pillars of its economy — seafood, tourism and offshore drilling.

'This is going to happen again'
The SBA is once again setting up disaster recovery centers along the Gulf Coast, although the oil spill effort will likely be overshadowed by the hurricanes' economic toll. While BP is responsible for the financial impact caused by the spill, the SBA is helping people while they wait for the corporate assistance.

"This is going to happen again — tomorrow — if there's another Katrina," Martin said. "They didn't fix enough for it not to happen."

Images of New Orleanians trapped inside the Superdome without food and water, or desperately waiting on rooftops for help, haunted Americans in September 2005. Police officers walked off the job, looters ransacked downtown shops, and critics scolded the Bush administration for being too slow to respond.

A new computer system that was supposed to speed and simplify the loan process crashed time and again, resulting in massive delays. But that wasn't the only problem.

"There were lots of people sitting around not doing anything with thousands of applications pouring in everyday," said Brad Durtschi, a former SBA loan officer who now works for FEMA.

In the years leading up to the storms, the agency's staff had been cut. When Katrina hit, followed by Rita about three weeks later, SBA had only 880 employees to process hundreds of thousands of loan applications, including 190 loan officers working at the Fort Worth center.

SBA scrambled to hire several thousand additional staffers, many to work in Texas, where loan applications filed in dozens of makeshift disaster recovery centers along the Gulf Coast were sent for processing. The new loan officers — many from the private sector, with no loan processing experience — were rushed into service and expected to navigate a complex set of rules and regulations.

It was bedlam, Durtschi said.

The loan applications piled up, and the phones rang and rang. People wanted to know if their application had been approved, and when they would receive money to help reopen their business or rebuild their home. At one point, officers were told by supervisors not to answer phones because the questions were taking up too much time, former loan officers and supervisors told the AP.

'Crying and begging'By December 2005, the system was gridlocked. Hundreds of thousands of applications were sitting in computer queues awaiting processing. And the phone calls turned from inquisitive to frustrated to angry.

"People called in everyday crying and begging," Martin said. "We were forced to do things that were wrong."

With congressional pressure mounting to turn loans around more quickly, the agency began using new methods to clear the backlog that had little to do with helping people get loans, former loan officers and supervisors said.

Supervisors would reject applications if a single sheet of paper or signature was out of place. In the first four months following Katrina and Rita, the agency rejected more loans than it approved, according to an AP analysis. Loan officers were required to process up to twice as many applications per day. When one landed on their desk, a loan officer had to try three times within 24 hours to reach the potential borrower by telephone. If they didn't, the loan was either declined or indefinitely shelved.

If shelved, the loan application was effectively canceled and a letter was generated saying the applicant had 60 days to reapply. But many times, the loan officers, under pressure to reach quotas, would call only once or not at all, then withdraw or decline the application, the former loan workers said.

Overwhelmed employees
They and their supervisors described computer queues clogged with tens of thousands of loan applications, and of overwhelmed employees being told to put efficiency above all else and callously dismiss the pleas of desperate people.

"People were homeless, living in their cars," said Young, now a bank loan officer. "People were running out of rental assistance. They didn't have a place to go. They had worn out their favors with their families. And they needed to move on. And they would call and ask: 'Could you please do anything you can to help us?'"

"I couldn't sleep," he said. "I knew it wasn't right."

Said Durtschi: "We had no compassion for these people. To our supervisors, it was all about production and we hurt a lot of people along the way."

A 2007 report from the SBA's Office of the Inspector General, which performs independent reviews and audits of the agency, criticized SBA for canceling pending approved loans without warning.

During one period in 2006, the report said, the agency's Buffalo, N.Y., call center terminated 7,752 pending loans without notifying borrowers in advance. In many cases, the investigators found, no call had ever been made to the applicant to begin final processing.

If a loan officer did manage to reach a borrower, the applicant was given 48 hours to fax documents to bring the loan to the closing phase. Often, the borrower didn't have all the paperwork readily available.

"Maybe you need a deed and it's at the courthouse, but the courthouse is under water. The documentation is destroyed," said Young, the former SBA loan officer. "Or maybe you need payroll stubs, and that information is gone. Now you're told you have 48 hours to get it. That's even if we reach you by phone. We have your old phone number. Sometimes we call, sometimes we don't."

When borrowers requested additional time, the agency was unyielding, Young said.

"We never budged," he said. "It was a manufactured deadline that put undue stress on people."

"At the end of the 48 hours, you're wiped out from our queue," he said. "You didn't exist."

'We weren't there to help'When a borrower did find the critical documents and fax them to Fort Worth, the paperwork would often get lost. The office had only a few fax machines to handle the crush. Receipt of the documentation was assured only if a loan officer waited by the machine to snag the papers.

Bazile remembers faxing 50- to 70-page packets two or three times before someone at the processing center would acknowledge receipt.

"How could something like that get lost?" she wondered. "It was a constant frustration." Plus, the documents contained personal information, such as Social Security and bank account numbers.

Martin recalled once arguing unsuccessfully with her supervisor in favor of approving a loan for a small business owner and being told: "Don't think about it. Move on."

"They were ruthless, absolutely ruthless," Martin said of her bosses. "We weren't there to help the public."

Cash prizes
Those same supervisors often conducted contests with cash prizes to reward loan officers who cleared the most applications, usually by rejecting as many as possible. One supervisor told the AP she won $100 for exceeding production quotas.

"I would hear loan officers laughing about the loans they turned down," Young said. "The same people kept winning."

In recent weeks, the AP found more than two dozen of the same supervisors still working in the Fort Worth office. But all of the current supervisors reached by the AP declined to comment, saying the agency prohibited them from talking.

Others recall that productivity was the mantra at staff meetings. At one, a supervisor explained to loan officers how to get people off the phone. Use an egg timer, he said. When it goes off, hang up.

"Your performance was measured on the number of files you closed," said Bill Russell, a former loan officer and certified public accountant. "It wasn't long until people discovered that to meet the quota, the easiest thing to do was just to deny the loan."

One supervisor who spoke to the AP on condition of anonymity out of fear she would lose her job said that on weekends fellow supervisors and other managers would order pizza and just empty the queue of applications.

The extra sessions were called "Signoff Sunday," she said. "It was all about getting these loans out of the system to make it appear like we were clearing up the backlog and helping people. But we weren't helping people. What we were doing was saving our own jobs."

He said loan officers had to meet strict production quotas in line with the private sector. If they didn't, they could be let go.

But it was another campaign that created even more chaos in Fort Worth. By fall 2006, more than a year after Katrina, loans were still not moving quickly enough, former workers recalled. So SBA began "90-in-45," a campaign to remove 90,000 loan applications from the queue in just 45 days.

"There was no real incentive to approve a loan," Young said.

When borrowers found out their applications had been canceled, they would often call pleading for another chance, he said, adding that his supervisors wouldn't let him help.

"It was heart wrenching," he said, fighting back tears. "There were some nights that my wife would ask, 'What's wrong with you?' I'd sit there alone at the table, late at night, staring into space. Some nights I was up to 3 in the morning and I had to be up at 6."

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Over the past year, AP reporters visited dozens of Gulf Coast communities, even going door-to-door in two neighborhoods — in Waveland, Miss., and Chalmette, La. with high concentrations of SBA loans that were approved but never disbursed.

Time and again, on streets where recovery has been hard to come by and where tall untended grass and cracked concrete foundations stand as reminders that many more people used to live and work here, the stories were remarkably consistent: A nightmare of lost paperwork; sudden and onerous deadlines; uncooperative, even combative loan officers at the other end of the phone line.

People in these communities are fiercely independent and wary of asking the government for help. Many said they did so because Katrina was so thoroughly destructive that they had no choice. But many of those who recalled their battles with SBA said they dreaded the possibility of having to ask the agency for help ever again.

Scott Peterson is still angry about the months he spent fighting with the SBA for a loan to reopen his flooded seafood restaurant in Waveland, a quiet beach town on the Mississippi coast that was nearly wiped off the map. He was rejected twice for a loan to repair the S&B Bar and Grill — even though he believed he qualified.

He reopened in 2006, but not before maxing out his credit cards and borrowing money from his parents to rebuild. He says he did the best he could, but some of the windows on his restaurant are still boarded up and the roof leaks.

Resentment
Peterson is hurting again in a new way, this time because the oil spill has made it hard to find the seafood that draws his customers.

Despite his resentment and lack of faith in the SBA, he's contemplating making another request for help.

"It's going to be something to see when I apply again," he said, shaking his head while stirring a pot of chicken gumbo on his kitchen stove.

Bazile remembers how she became so upset dealing with the SBA process that she had to seek medical assistance.

"I had no idea how overwhelming it was going to be," said Bazile, 44, a former newspaper reporter who now works in the St. Bernard Parish president's office. "My blood pressure shot up. My cardiologist asked me to stay home for a week or so, and so I did, but the problems didn't go away."

Dealing with the agency became a full-time job for Bazile, who lives on a street in Chalmette that saw one of the highest concentrations of SBA activity along the coast. She took a seven-week leave from her job at The Times-Picayune to contend with the mounds of paperwork and battery of phone calls it took to secure the money to rebuild her home.

More than once, a loan officer gave her a 48-hour deadline — out of the blue — to provide a required document or risk having her file closed. Phone messages went unreturned, and faxes to SBA mysteriously went missing.

"It caused incredible emotional distress on me," said a tearful Bazile. "Many, many times my husband said, 'Just let it go. Let it go. We'll be all right.' And we could have walked away. But, in the end, that low interest rate was the very key to the way we're living right now. They owed it to us, and I wasn't going to let somebody bully me out of it."

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Many SBA applicants along the Gulf Coast had left their flooded homes and businesses and were living in tents, government-issued trailers, or with family and friends — sometimes far from home. In many cases, SBA officials had encouraged them to apply for loans. Few of the more than 200 interviewed said they had a smooth ride.

Hassie Howell, who owned six rental properties on the same street in Chalmette, was approved for a $300,000 loan to fix up all six. He repeatedly called SBA to find out when he would receive the money. But each time he called, he said, he was transferred to another loan officer who wanted even more paperwork before the money could be released. When he sent in the documents, there were "more unexplained delays."

Unable to wait any longer, Howell sold two properties elsewhere in Chalmette and used the proceeds to begin rebuilding the rental units.

When SBA called nearly a year later and told him it was ready to disburse the $300,000, Howell felt it was too little, too late. "I didn't want anything to do with them," he said.

Today, the street is plagued by omnipresent concrete slabs and vacant decrepit homes. A neighboring street is a tangle of empty, garbage-strewn lots and shoulder-high weeds. Five of his homes have tenants.

The community was stable before Katrina, Howell said. Now it is transient.

"If I had gotten the money early, we would have been up and others would have returned," said Howell, who now lives in Baton Rouge, La. "The whole experience was a nightmare."

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Building 'bigger and better'From the Fairhope Yacht Club's wraparound porch, Schmitz watches boats bob before a brilliant orange-and-pink sunset and describes how the old clubhouse, a rambling, one-story structure, was destroyed by Katrina.

That left members with a choice: Restore the facility to its former specs or build a new multistory clubhouse with amenities that could attract new members. They chose the latter.

The new club's $4 million price tag includes an SBA loan of about $1.5 million. The facility is double the size of the old building, with a new restaurant and bar and a swimming pool that alone cost nearly $300,000. The Fairhope Yacht Club reopened in 2008; these days there's a waiting list to join.

"For us, Katrina was an opportunity to build something bigger and better," said Schmitz, a short, thin former teacher who looked ready for a regatta, with his khaki shorts, white sneakers and red pullover shirt emblazoned with the yacht club's logo — a blue and white striped flag with the club's initials.

The yacht club had enough insurance to rebuild without SBA money. But without the federal help there would have been no upgrade. "I don't see anything wrong with that," Schmitz said.

Yet SBA regulations state that loan recipients should rebuild properties only to pre-storm conditions.

"Any improvements beyond pre-disaster condition is upgrading, and is not eligible," according to SBA regulations.

"Our program is set up to return you to your pre-disaster condition," said Jay MacKenna, an SBA spokesman. "So if you had a 1,000-square-foot mobile home and that was totally destroyed, we could help you replace your 1,000-square-foot mobile home. We would not be providing you money to go out and buy a 2,000-square-foot mobile home."

There are certain exceptions, but they have to be authorized on a case-by-case basis. For example, the agency will allow an upgrade if an applicant uses their own money or borrows from a private lender to pay for the extra improvements. But agency officials have to check whether the borrower has the ability to repay the SBA loan and "any other debts."

'It was a wonderful experience'
Schmitz said the club didn't ask SBA if it could upgrade. But it was no secret; everyone in the community knew they were building a bigger yacht club. He said he never saw anyone from the SBA visit while the clubhouse was under construction.

"We just told them we needed the money to rebuild. It was quick and fast and we didn't have any problems," he said. "It was a wonderful experience."

Before the money was disbursed, the agency verified Fairhope "had injected sufficient funds into the project" to meet the guidelines, said SBA spokeswoman Carol Chastang.

"There was no indication anywhere in the file that the yacht club upgraded their facilities using SBA disaster loan proceeds," she said in an e-mail.

But she also said the yacht club had "completed much of the rebuilding with insurance and outside funding by the time it applied for the SBA disaster loan."

"What does that tell you about how the entire process worked? Did they really need the money? This violates the spirit of the rules," said Gale Martin, one of the former SBA loan officers.

For his part, Schmitz said the club's members helped navigate the loan through the system.

"You have to understand that we have people from all walks of life," he said. "We have lawyers. We've got people who — loan officers, and all this — who all knew pretty much the inside track on all this stuff, and they took care of it for us."

Video: Katrina memorial dedicated in Lower 9th Ward

Transcript of: Katrina memorial dedicated in Lower 9th Ward

BRIAN WILLIAMS, anchor:And again, all this is happening as we approach the fifth anniversary of
Hurricane Katrina
.
In New Orleans
just today, a historic marker was dedicated, placed on the very spot where the 17
Street Canal
flood wall first gave way, leading to the city's great disaster. We'll report from the gulf beginning here Thursday night, when we'll revisit many of the people we met during the crisis. We'll also have an exclusive interview with
President Obama
that will air beginning Sunday.